Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

Im a partner in a couple small businesses. I have 5% ownership

I'm a partner in a...
I'm a partner in a couple small businesses. I have 5% ownership in one, 49% in the other. I am looking to lease a vehicle primarily for business use. I know that the percentage of the payments that is business use can be deductible, but how much of the down payment can I deduct off of this years taxes? Also, does my ownership percentages affect how much I can deduct?
Show More
Show Less
Ask Your Own Tax Question
Answered in 2 minutes by:
7/17/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

NPVAdvisor : Leased Vehicles Require Special Computations

Leasing a vehicle requires special computations. In addition, unless you use the standard mileage rate (SMR) in your first year, then you will not be able to use this method during the term of the lease.


Electing the SMR. If you lease a vehicle for your business, you can elect to use the standard mileage rate, if you do so in the very first year of the lease--and you will need to continue to use this method throughout the entire term of the lease.


If you use the standard mileage rate you are not able to claim a separate deduction for you lease payments. The beauty of the standard mileage rate is nearly all the expenses of operating a car are figured into the rate. However, the simplicity may result in leaving money on the table--or, more accurately, handing it over to Uncle Sam in taxes owed.


Using the actual cost method. If you want to make sure that you get the maximum deduction and are willing to keep meticulous records of every vehicle-related expense, you can opt to use the actual cost method for computing your vehicle expenses. If you use the actual cost method, you can deduct each lease payment as a rental expense.


You Must Allocate Expenses If There Is Personal Use When the business use of a leased vehicle is less than 100 percent, the rental deduction is scaled down in proportion to the personal use.

NPVAdvisor :

As an aside:

NPVAdvisor :

If you use a leased car 75 percent for business, and 25 percent for personal purposes and commuting, you can deduct only 75 percent of the lease payments. The percentage of use for business is determined using your mileage records.

NPVAdvisor :

hang with me here

NPVAdvisor :

Inclusion Amount Reduces Lease Payment


To prevent people from leasing a car to avoid the luxury car depreciation limits that apply to many purchased vehicles, the law requires that you must reduce your deductible lease payments by an amount referred to as the "inclusion amount.


If the fair market value of the car was more than the triggering threshold (see charts, below), you must reduce your deductible lease expenses by the applicable inclusion amount for each year that you lease the vehicle.


To determine the inclusion amount you need three pieces of information:



  1. the fair market value of the vehicle on the day you entered into the lease agreement. This is be the amount you use for the entire lease term, even though the FMV of a vehicle drops with each passing year;

  2. the percentage of business use of the vehicle during the year; and

  3. the number of days in the lease term in your tax year (January through December for virtually all sole proprietors). This will will be less than a full year in the first and last year of the lease






























Cars
FMV Triggering Inclusion Amount
Year Lease BeganFair Market Value
2008–2012$18,500
2007$15,500
2005–2006$15,200
2004$17,500
2003$18,000
1999–2002$15,500

NPVAdvisor :

These tables are published in IRS Publication 463, Travel, Entertainment, Gifts, and Car Expenses.There is separate table for leased cars and for leased trucks and vans, so it's important to consult the correct table in doing the calculation.


To use the table, find the value of your car on the first day of your lease term (or on the day you converted your personal car to business use) in the first column, and read across the line to the column that matches the year of your lease to find the dollar value to be included. Then prorate the dollar amount from the table for the number of days of the lease term included in your tax year, and multiply the prorated amount by your percentage of business use for the year (as calculated by using your mileage records).

NPVAdvisor :

So, it's not quite as simple as what part is deductible

NPVAdvisor :

Remember ,


The standard mileage rate can also be used for a leased vehicle. If you use the standard mileage rate, you cannot switch to the actual expense method in a later year.


If you use the standard mileage rate for a leased vehicle, the lease payment amount is not deductible.


Leased vehicles are not depreciated. Instead, the business portion of the lease payment is deducted. When the value of the leased vehicle is above a certain amount, you must also subtract an "income inclusion" amount from the deductible amount. For vehicles first leased in 2012, the threshold is $18,500. This income inclusion rule is an attempt to equalize the tax benefits from leasing and owning business vehicles.


For example, a vehicle leased in 2012 that is valued at $45,500 and that is used 100% for business would require an income inclusion amount of $17 to be subtracted from the 2012 lease payments in arriving at the deductible amount for that year. In 2013, the income inclusion amount would be $37. Higher income inclusion amounts would apply for 2014 through 2016.

NPVAdvisor :

sometimes the standard mileage rate is much cleaner .... (certainly less administrative overhead)

Customer: So my ownership percentages don't affect the amount of deduction I can take at all, it's just the percentage of business use that will affect it?
NPVAdvisor :

right

NPVAdvisor :

with either method

NPVAdvisor :

because whether you're using actual cost (which is a real headache when leasing) or mileage, you're essentially using up the car with it's business use

Customer: I've read that the down payment is spread over the life of the lease, so a $5000 down payment is spread over the three years for tax deduction purposes? Am I understanding that correctly?
NPVAdvisor :

the mileage, probably stating the obvious here, has an assumed depreciation built in

NPVAdvisor :

yes, that's correct

NPVAdvisor :

you see that above

NPVAdvisor :

too

Customer: Ok, I think I've got it now. Thank you!
NPVAdvisor :

... welcome (the link,s etc above will stay active, to come back for reference

Customer: Awesome, thanks again
NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.


 

NPVAdvisor :

you're welcome

NPVAdvisor :

If you'd like to work with me, specifically, again ... just say "for Lane only," at the beginning of your questions

NPVAdvisor :

Thansk for using us

NPVAdvisor :

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now

Thanks much!

As a follow-up ...

Here’s an example showing the differences in business deductions between purchase versus leasing a car with the value of $35,000 and 80% business use.

Purchased $35,000 car

1st year

2nd year

3rd year

Limited Depreciation

$3,060

$4,900

$2,850

Less 20% personal use

$612

$980

$570

Allowed business deduction

$2,448

$3,920

$2,280









Leased $35,000 car

1st year

2nd year

3rd year

Yearly payments

$4,500

$4,500

$4,500

Less inclusion

$138

$303

$452

Net monthly payments

$4,362

$4,197

$4,048

Less 20% personal use

$872

$839

$810

Allowed business deduction

$3,490

$3,358

$3,238


You can see that you need to look at the combined years to see if it’s better to purchase or lease a business vehicle. As the price goes up on the car, leasing usually becomes more preferable. But don’t forget if you purchased the vehicle, you can also deduct the business percentage of the interest on the vehicle’s loan.

There is one more difference between buying and leasing a business vehicle. That difference is the disposition of the vehicle. When you dispose of a business vehicle that you own, there may be taxable gain or deductible loss. The portion of any gain that is due to depreciation will be taxed as ordinary income. When you return your leased car to the dealer, there is no taxable gain or loss.

From:
http://blog.turbotax.intuit.com/2007/08/02/buy-or-lease-your-new-business-vehicle/

Ask Your Own Tax Question
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
12,876 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

Lane is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
If lease payments are being taken as a tax deduction can the
If lease payments are being taken as a tax deduction can the mileage method be used to account for other expenses? Or are you required to use actual expenses?… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Dose mean can not deduct state income taxes only or dose it
dose mean can not deduct state income taxes only or dose it includes property taxes too … read more
Lane
Lane
JD, CFP, MBA, CRPS
12,876 satisfied customers
Are the following items tax deductible with regards to an SBA loan?
Are the following items tax deductible with regards ***** ***** SBA loan ? 1. SBA guaranty fee 2. packaging fee 3. Environmental expense ( towards environmental assessment ) 4. Appraisal fee What docu… read more
Charles Greiner
Charles Greiner
Owner
Bachelor's Degree
2,436 satisfied customers
Is the house or taxes deductible for him. How does it affect
Is the house or taxes deductible for him. How does it affect his taxes. How can the house be in both our names, without making me an equal partner.… read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
32 satisfied customers
Form 1120, cash basis. If Taxes paid to IRS are deductible,
Form 1120, cash basis. If Taxes paid to IRS are deductible, are refunds for overpayment the equivalent of income?… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Trying to decide between pre-tax and post tax deduction for
trying to decide between pre-tax and post tax deduction for my health care coverage … read more
abci168
abci168
Principal
27 satisfied customers
I'm looking for help with tax deductions. I will be
I will be receiving a large lump sum this year. I want to know if there is a limit to how much state tax I can deduct for federal filing? … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Can taxes paid in for a previous year be deducted in the
Can taxes paid in for a previous year be deducted in the current year? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Is there an SUV vehicle that qualifies to be deducted as a
Is there an SUV vehicle that qualifies to be deducted as a farming expense vehicle? What are the requirements? In the USA.… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
Two questions on federal tax deductibility: 1. We personally
Two questions on federal tax deductibility: 1. We personally paid legal fees for our manufacturer C Corp. The fees were for assistance in preparing a Research & Development tax credit application. Can… read more
Lane
Lane
JD, CFP, MBA, CRPS
12,876 satisfied customers
Sure. I'm electing to deduct foreign taxes paid in 2016 due
I'm electing to deduct foreign taxes paid in 2016 due to limitations on the credit usage. I have a credit carryover from 2015 as well. Since the carryover is from earlier years, can I use some of the carryover and the current year foreign tax deduction on the same 2016 tax return? … read more
Anne
Anne
Master Tax Preparer
1,328 satisfied customers
You may recall that tax deductions are only deductible by
You may recall that tax deductions are only deductible by the legislative grace of Congress. After this lesson, you might have realized that Congress was pretty generous with the types of business exp… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
Have a question about tax deductions my 401K withdrawals
Have a question about tax deductions my 401K withdrawals since I may need to a distribution of a large amount? … read more
abci168
abci168
Principal
27 satisfied customers
Are medical equipment purchesed tax deductable. I have been
I have been prescribed a portable oxygen generator is this equipment deductable … read more
abci168
abci168
Principal
27 satisfied customers
Can house maintenance and property taxes be deducted on form
Hello. Can house maintenance and property taxes be deducted on form 1041 for a house owned by decedent prior to the Executors selling it? … read more
Lane
Lane
JD, CFP, MBA, CRPS
12,876 satisfied customers
I would like clarification on the IRS tax deductions and a
I would like clarification on the IRS tax deductions and a rental property I purchased recently. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Is the Section199 tax deduction available to a dentist who
Is the Section199 tax deduction available to a dentist who will be fabricating dental appliances?… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,220 satisfied customers
I have a question regarding business tax deductions for
I have a question regarding business tax deductions for restaurant meals with clients?What percentage of the meal and gratuity are tax deductible and is alcohol also included in the amount which may b… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,220 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x